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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
INVESTMENT COMPANY ACT FILE NUMBER: 811-21484
| EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER: |
Calamos Strategic Total Return Fund | |
| ADDRESS OF PRINCIPAL EXECUTIVE OFFICES: |
2020 Calamos Court, Naperville, Illinois 60563-2787 | |
| NAME AND ADDRESS OF AGENT FOR SERVICE: |
John P. Calamos, Sr., President Calamos Advisors LLC 2020 Calamos Court Naperville, Illinois 60563-2787 | |
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 245-7200
DATE OF FISCAL YEAR END: October 31, 2016
DATE OF REPORTING PERIOD: November 1, 2015 through April 30, 2016
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Item 1. Report to Shareholders
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| CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | 1 |
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Letter to Shareholders
| 2 | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT |
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Letter to Shareholders
| CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | 3 |
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The Calamos Closed-End Funds: An Overview
In our closed-end funds, we draw upon decades of investment experience, including a long history of opportunistically blending asset classes in an attempt to capture upside potential while seeking to manage downside risk. We launched our first closed-end fund in 2002.
Closed-end funds are long-term investments. Most focus on providing monthly distributions, but there are important differences among individual closed-end funds. Calamos closed-end funds can be grouped into multiple categories that seek to produce income while offering exposure to various asset classes and sectors.
| Portfolios Positioned to Pursue High Current Income from Income and Capital Gains |
Portfolios Positioned to Seek Current Income, with Increased Emphasis on Capital Gains Potential | |
| OBJECTIVE: U.S. ENHANCED FIXED INCOME | OBJECTIVE: GLOBAL TOTAL RETURN | |
| Calamos Convertible Opportunities and Income Fund (Ticker: CHI) Invests in high yield and convertible securities, primarily in U.S. markets
Calamos Convertible and High Income Fund (Ticker: CHY) Invests in high yield and convertible securities, primarily in U.S. markets
OBJECTIVE: GLOBAL ENHANCED FIXED INCOME Calamos Global Dynamic Income Fund (Ticker: CHW) Invests in global fixed income securities, alternative investments and equities |
Calamos Global Total Return Fund (Ticker: CGO) Invests in equities and higher-yielding convertible securities and corporate bonds, in both U.S. and non-U.S. markets
OBJECTIVE: U.S. TOTAL RETURN Calamos Strategic Total Return Fund (Ticker: CSQ) Invests in equities and higher-yielding convertible securities and corporate bonds, primarily in U.S. markets
Calamos Dynamic Convertible and Income Fund (Ticker: CCD) Invests in convertibles and other fixed income securities | |
Our Level Rate Distribution Policy
Closed-end fund investors often look for a steady stream of income. Recognizing this, Calamos closed-end funds have a level rate distribution policy in which we aim to keep monthly income consistent through the disbursement of net investment income, net realized short-term capital gains and, if necessary, return of capital. We set distributions at levels that we believe are sustainable for the long term. Our team is focused on delivering an attractive monthly distribution, while maintaining a long-term focus on risk management. The level of the funds’ distributions can be greatly influenced by market conditions, including the interest rate environment. The funds’ distributions will depend on the individual performance of positions the funds hold, our view of the benefits of retaining leverage, fund tax considerations, and maintaining regulatory requirements.
For more information about any of these funds, we encourage you to contact your financial advisor or Calamos Investments at 800.582.6959 (Monday through Friday from 8:00 a.m. to 6:00 p.m., Central Time). You can also visit us at www.calamos.com.
For more information on our level rate distribution policy, please see page 29.
| 4 | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT |
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| CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | 5 |
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Investment Team Discussion
| 6 | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT |
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Investment Team Discussion
| CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | 7 |
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Schedule of Investments April 30, 2016 (Unaudited)
| 8 | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | See accompanying Notes to Schedule of Investments |
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Schedule of Investments April 30, 2016 (Unaudited)
| See accompanying Notes to Schedule of Investments | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | 9 |
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Schedule of Investments April 30, 2016 (Unaudited)
| 10 | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | See accompanying Notes to Schedule of Investments |
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Schedule of Investments April 30, 2016 (Unaudited)
| See accompanying Notes to Schedule of Investments | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | 11 |
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Schedule of Investments April 30, 2016 (Unaudited)
| 12 | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | See accompanying Notes to Schedule of Investments |
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Schedule of Investments April 30, 2016 (Unaudited)
INTEREST RATE SWAPS
| COUNTERPARTY | FIXED RATE (FUND PAYS) |
FLOATING RATE (FUND RECEIVES) |
TERMINATION DATE |
NOTIONAL AMOUNT |
UNREALIZED APPRECIATION/ (DEPRECIATION) |
|||||||||
| BNP Paribas, SA | 0.934% quarterly | 3 month LIBOR | 07/05/17 | $ | 52,000,000 | $ | (98,618 | ) | ||||||
| BNP Paribas, SA | 1.009% quarterly | 3 month LIBOR | 06/12/17 | 47,000,000 | (133,831 | ) | ||||||||
|
|
|
|||||||||||||
| $ | (232,449 | ) | ||||||||||||
|
|
|
|||||||||||||
| See accompanying Notes to Financial Statements | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | 13 |
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Statement of Assets and Liabilities April 30, 2016 (Unaudited)
| ASSETS |
||||
| Investments in securities, at value (cost $2,328,210,600) |
$ | 2,376,168,855 | ||
| Cash with custodian (interest bearing) |
141,770 | |||
| Receivables: |
||||
| Accrued interest and dividends |
10,757,503 | |||
| Investments sold |
2,071,765 | |||
| Prepaid expenses |
130,893 | |||
| Other assets |
248,922 | |||
| Total assets |
2,389,519,708 | |||
| LIABILITIES |
||||
| Unrealized depreciation on interest rate swaps |
232,449 | |||
| Payables: |
||||
| Notes payable |
682,000,000 | |||
| Investments purchased |
6,404,943 | |||
| Affiliates: |
||||
| Investment advisory fees |
1,945,818 | |||
| Deferred compensation to trustees |
248,922 | |||
| Financial accounting fees |
22,684 | |||
| Trustees’ fees and officer compensation |
24,233 | |||
| Other accounts payable and accrued liabilities |
471,852 | |||
| Total liabilities |
691,350,901 | |||
| NET ASSETS |
$ | 1,698,168,807 | ||
| COMPOSITION OF NET ASSETS |
||||
| Common stock, no par value, unlimited shares authorized 154,514,000 shares issued and outstanding |
$ | 1,837,456,790 | ||
| Undistributed net investment income (loss) |
(54,601,966 | ) | ||
| Accumulated net realized gain (loss) on investments, foreign currency transactions and interest rate swaps |
(132,414,956 | ) | ||
| Unrealized appreciation (depreciation) of investments, foreign currency translations and interest rate swaps |
47,728,939 | |||
| NET ASSETS |
$ | 1,698,168,807 | ||
| Net asset value per common shares based upon 154,514,000 shares issued and outstanding |
$ | 10.99 |
| 14 | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | See accompanying Notes to Financial Statements |
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Statement of Operations Six Months Ended April 30, 2016 (Unaudited)
| INVESTMENT INCOME |
||||
| Interest |
$ | 18,230,412 | ||
| Dividends |
21,753,063 | |||
| Securities lending income |
96,711 | |||
| Dividend taxes withheld |
(83,911 | ) | ||
| Total investment income |
39,996,275 | |||
| EXPENSES |
||||
| Investment advisory fees |
11,814,835 | |||
| Interest expense and related fees |
3,823,918 | |||
| Financial accounting fees |
137,066 | |||
| Printing and mailing fees |
125,768 | |||
| Legal fees |
113,353 | |||
| Accounting fees |
74,276 | |||
| Audit fees |
71,627 | |||
| Trustees’ fees and officer compensation |
65,471 | |||
| Custodian fees |
28,928 | |||
| Registration fees |
15,798 | |||
| Transfer agent fees |
12,161 | |||
| Other |
130,182 | |||
| Total expenses |
16,413,383 | |||
| NET INVESTMENT INCOME (LOSS) |
23,582,892 | |||
| REALIZED AND UNREALIZED GAIN (LOSS) |
||||
| Net realized gain (loss) from: |
||||
| Investments |
(65,928,385 | ) | ||
| Foreign currency transactions |
(75 | ) | ||
| Interest rate swaps |
(263,426 | ) | ||
| Change in net unrealized appreciation/(depreciation) on: |
||||
| Investments |
14,026,848 | |||
| Foreign currency translations |
3,133 | |||
| Interest rate swaps |
206,472 | |||
| NET GAIN (LOSS) |
(51,955,433 | ) | ||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (28,372,541 | ) | |
| See accompanying Notes to Financial Statements | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | 15 |
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Statements of Changes in Net Assets
| (UNAUDITED) SIX MONTHS ENDED APRIL 30, 2016 |
YEAR ENDED OCTOBER 31, 2015 |
|||||||
| OPERATIONS |
||||||||
| Net investment income (loss) |
$ | 23,582,892 | $ | 58,190,321 | ||||
| Net realized gain (loss) |
(66,191,886 | ) | 43,726,804 | |||||
| Change in unrealized appreciation/(depreciation) |
14,236,453 | (78,140,709 | ) | |||||
| Net increase (decrease) in net assets applicable to shareholders resulting from operations |
(28,372,541 | ) | 23,776,416 | |||||
| DISTRIBUTIONS FROM |
||||||||
| Net investment income |
(76,484,430 | ) | (102,617,875 | ) | ||||
| Return of capital |
— | (50,350,985 | ) | |||||
| Net decrease in net assets from distributions |
(76,484,430 | ) | (152,968,860 | ) | ||||
| TOTAL INCREASE (DECREASE) IN NET ASSETS |
(104,856,971 | ) | (129,192,444 | ) | ||||
| NET ASSETS |
||||||||
| Beginning of period |
$ | 1,803,025,778 | $ | 1,932,218,222 | ||||
| End of period |
1,698,168,807 | 1,803,025,778 | ||||||
| Undistributed net investment income (loss) |
$ | (54,601,966 | ) | $ | (1,700,428 | ) | ||
| 16 | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | See accompanying Notes to Financial Statements |
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Statement of Cash Flows Six Months Ended April 30, 2016 (Unaudited)
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||
| Net increase/(decrease) in net assets from operations |
$ | (28,372,541 | ) | |
| Adjustments to reconcile net increase/(decrease) in net assets from operations to net cash provided by operating activities: |
||||
| Purchases of investment securities |
(242,912,133 | ) | ||
| Net proceeds from disposition of short term investments |
116,537,686 | |||
| Proceeds from disposition of investment securities |
215,613,156 | |||
| Amortization and accretion of fixed-income securities |
(1,978,831 | ) | ||
| Net realized gains/losses from investments |
65,928,385 | |||
| Change in unrealized appreciation or depreciation on investments |
(14,026,848 | ) | ||
| Change in unrealized appreciation or depreciation on interest rate swaps |
(206,472 | ) | ||
| Net change in assets and liabilities: |
||||
| (Increase)/decrease in assets: |
||||
| Accrued interest and dividends receivable |
253,897 | |||
| Prepaid expenses |
(92,284 | ) | ||
| Other assets |
42,499 | |||
| Increase/(decrease) in liabilities: |
||||
| Payables to affiliates |
(191,935 | ) | ||
| Other accounts payable and accrued liabilities |
(1,434 | ) | ||
| Net cash provided by/(used in) operating activities |
$ | 110,593,145 | ||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||
| Distributions to shareholders |
(76,484,430 | ) | ||
| Repayment of note payable |
(34,000,000 | ) | ||
| Net cash provided by/(used in) financing activities |
$ | (110,484,430 | ) | |
| Net increase/(decrease) in cash |
$ | 108,715 | ||
| Cash at beginning of period |
$ | 33,055 | ||
| Cash at end of period |
$ | 141,770 | ||
| Supplemental disclosure |
||||
| Cash paid for interest and related fees |
$ | 3,891,288 | ||
| See accompanying Notes to Financial Statements | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | 17 |
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Notes to Financial Statements (Unaudited)
Note 1 – Organization and Significant Accounting Policies
Organization. Calamos Strategic Total Return Fund (the “Fund”) was organized as a Delaware statutory trust on December 31, 2003 and is registered under the Investment Company Act of 1940 (the “1940 Act”) as a diversified, closed-end management investment company. The Fund commenced operations on March 26, 2004.
The Fund’s investment strategy is to provide total return through a combination of capital appreciation and current income. The Fund, under normal circumstances, will invest at least 50% of its managed assets in equity securities (including securities that are convertible into equity securities). The Fund may invest up to 35% of its managed assets in securities of foreign issuers, including debt and equity securities of corporate issuers and debt securities of government issuers in developed and emerging markets. The Fund may invest up to 15% of its managed assets in securities of foreign issuers in emerging markets. “Managed assets” means the Fund’s total assets (including any assets attributable to any leverage that may be outstanding) minus total liabilities (other than debt representing financial leverage).
Significant Accounting Policies. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP), which require management to make certain estimates and assumptions at the date of the financial statements. Actual results may differ from those estimates. Subsequent events, if any, through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Fund Valuation. The valuation of the Fund’s investments is in accordance with policies and procedures adopted by and under the ultimate supervision of the board of trustees.
Fund securities that are traded on U.S. securities exchanges, except option securities, are valued at the official closing price, which is the last current reported sales price on its principal exchange at the time each Fund determines its net asset value (“NAV”). Securities traded in the over-the-counter market and quoted on The NASDAQ Stock Market are valued at the NASDAQ Official Closing Price, as determined by NASDAQ, or lacking a NASDAQ Official Closing Price, the last current reported sale price on NASDAQ at the time a Fund determines its NAV. When a last sale or closing price is not available, equity securities, other than option securities, that are traded on a U.S. securities exchange and other equity securities traded in the over-the-counter market are valued at the mean between the most recent bid and asked quotations on its principal exchange in accordance with guidelines adopted by the board of trustees. Each option security traded on a U.S. securities exchange is valued at the mid-point of the consolidated bid/ask quote for the option security, also in accordance with guidelines adopted by the board of trustees. Each over-the-counter option that is not traded through the Options Clearing Corporation is valued based on a quotation provided by the counterparty to such option under the ultimate supervision of the board of trustees.
Fixed income securities, certain convertible preferred securities, and non-exchange traded derivatives are normally valued by independent pricing services or by dealers or brokers who make markets in such securities. Valuations of such fixed income securities, certain convertible preferred securities, and non-exchange traded derivatives consider yield or price of equivalent securities of comparable quality, coupon rate, maturity, type of issue, trading characteristics and other market data and do not rely exclusively upon exchange or over-the-counter prices.
Trading on European and Far Eastern exchanges and over-the-counter markets is typically completed at various times before the close of business on each day on which the New York Stock Exchange (“NYSE”) is open. Each security trading on these exchanges or in over-the-counter markets may be valued utilizing a systematic fair valuation model provided by an independent pricing service approved by the board of trustees. The valuation of each security that meets certain criteria in relation to the valuation model is systematically adjusted to reflect the impact of movement in the U.S. market after the foreign markets close. Securities that do not meet the criteria, or that are principally traded in other foreign markets, are valued as of the last reported sale price at the time the Fund determines its NAV, or when reliable market prices or quotations are not readily available, at the mean between the most recent bid and asked quotations as of the close of the appropriate exchange or other designated time. Trading of foreign securities may not take place on every NYSE business day. In addition, trading may take place in various foreign markets on Saturdays or on other days when the NYSE is not open and on which the Fund’s NAV is not calculated.
If the pricing committee determines that the valuation of a security in accordance with the methods described above is not reflective of a fair value for such security, the security is valued at a fair value by the pricing committee, under the ultimate supervision of the board of trustees, following the guidelines and/or procedures adopted by the board of trustees.
| 18 | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT |
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Notes to Financial Statements (Unaudited)
The Fund also may use fair value pricing, pursuant to guidelines adopted by the board of trustees and under the ultimate supervision of the board of trustees, if trading in the security is halted or if the value of a security it holds is materially affected by events occurring before the Fund’s pricing time but after the close of the primary market or exchange on which the security is listed. Those procedures may utilize valuations furnished by pricing services approved by the board of trustees, which may be based on market transactions for comparable securities and various relationships between securities that are generally recognized by institutional traders, a computerized matrix system, or appraisals derived from information concerning the securities or similar securities received from recognized dealers in those securities.
When fair value pricing of securities is employed, the prices of securities used by a Fund to calculate its NAV may differ from market quotations or official closing prices. In light of the judgment involved in fair valuations, there can be no assurance that a fair value assigned to a particular security is accurate.
Investment Transactions. Investment transactions are recorded on a trade date basis as of April 30, 2016. Net realized gains and losses from investment transactions are reported on an identified cost basis. Interest income is recognized using the accrual method and includes accretion of original issue and market discount and amortization of premium. Dividend income is recognized on the ex-dividend date, except that certain dividends from foreign securities are recorded as soon as the information becomes available after the ex-dividend date.
Foreign Currency Translation. Values of investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using a rate quoted by a major bank or dealer in the particular currency market, as reported by a recognized quotation dissemination service.
The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign currency gains or losses arise from disposition of foreign currency, the difference in the foreign exchange rates between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the ex-date or accrual date and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes (due to the changes in the exchange rate) in the value of foreign currency and other assets and liabilities denominated in foreign currencies held at period end.
Allocation of Expenses Among Funds. Expenses directly attributable to the Fund are charged to the Fund; certain other common expenses of Calamos Advisors Trust, Calamos Investment Trust, Calamos ETF Trust, Calamos Convertible Opportunities and Income Fund, Calamos Convertible and High Income Fund, Calamos Strategic Total Return Fund, Calamos Global Total Return Fund, Calamos Global Dynamic Income Fund and Calamos Dynamic Convertible and Income Fund are allocated proportionately among each Fund to which the expenses relate in relation to the net assets of each Fund or on another reasonable basis.
Income Taxes. No provision has been made for U.S. income taxes because the Fund’s policy is to continue to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended, and distribute to shareholders substantially all of the Fund’s taxable income and net realized gains.
Dividends and distributions paid to shareholders are recorded on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains is determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. To the extent these “book/tax” differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment. These differences are primarily due to differing treatments for foreign currency transactions, contingent payment debt instruments and methods of amortizing and accreting for fixed income securities. The financial statements are not adjusted for temporary differences.
The Fund recognized no liability for uncertain tax positions. A reconciliation is not provided as the beginning and ending amounts of unrecognized benefits are zero, with no interim additions, reductions or settlements. Tax years 2011 and forward remain subject to examination by U.S. and State tax jurisdictions.
| CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | 19 |
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Notes to Financial Statements (Unaudited)
Indemnifications. Under the Fund’s organizational documents, the Fund is obligated to indemnify its officers and trustees against certain liabilities incurred by them by reason of having been an officer or trustee of the Fund. In addition, in the normal course of business, the Fund may enter into contracts that provide general indemnifications to other parties. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. Currently, the Fund’s management expects the risk of material loss in connection to a potential claim to be remote.
Note 2 – Investment Adviser and Transactions With Affiliates Or Certain Other Parties
Pursuant to an investment advisory agreement with Calamos Advisors LLC (“Calamos Advisors”), the Fund pays an annual fee, payable monthly, equal to 1.00% based on the average weekly managed assets.
Pursuant to a financial accounting services agreement, during the period the Fund paid Calamos Advisors a fee for financial accounting services payable monthly at the annual rate of 0.0175% on the first $1 billion of combined assets, 0.0150% on the next $1 billion of combined assets and 0.0110% on combined assets above $2 billion (for purposes of this calculation “combined assets” means the sum of the total average daily net assets of Calamos Advisors Trust, Calamos Investment Trust, Calamos ETF Trust and the total average weekly managed assets of Calamos Convertible and High Income Fund, Calamos Strategic Total Return Fund, Calamos Convertible Opportunities and Income Fund, Calamos Global Total Return Fund, Calamos Global Dynamic Income Fund and Calamos Dynamic Convertible and Income Fund). Financial accounting services include, but are not limited to, the following: managing expenses and expense payment processing; monitoring the calculation of expense accrual amounts; calculating, tracking and reporting tax adjustments on all assets; and monitoring trustee deferred compensation plan accruals and valuations. The Fund pays its pro rata share of the financial accounting services fee payable to Calamos Advisors based on its relative portion of combined assets used in calculating the fee.
The Fund reimburses Calamos Advisors for a portion of compensation paid to the Fund’s Chief Compliance Officer. This compensation is reported as part of the “Trustees’ fees and officer compensation” expense on the Statement of Operations.
A trustee and certain officers of the Fund are also officers and directors of Calamos Advisors. Such trustee and officers serve without direct compensation from the Fund.
The Fund has adopted a deferred compensation plan (the “Plan”). Under the Plan, a trustee who is not an “interested person” (as defined in the 1940 Act) and has elected to participate in the Plan (a “participating trustee”) may defer receipt of all or a portion of their compensation from the Fund. The deferred compensation payable to the participating trustee is credited to the trustee’s deferral account as of the business day such compensation would have been paid to the participating trustee. The value of amounts deferred for a participating trustee is determined by reference to the change in value of Class I shares of one or more funds of Calamos Investment Trust designated by the participant. The value of the account increases with contributions to the account or with increases in the value of the measuring shares, and the value of the account decreases with withdrawals from the account or with declines in the value of the measuring shares. Deferred compensation of $248,922 is included in “Other assets” on the Statement of Assets and Liabilities at April 30, 2016. The Fund obligation to make payments under the Plan is a general obligation of the Fund and is included in “Payable for deferred compensation to trustees” on the Statement of Assets and Liabilities at April 30, 2016.
Note 3 – Investments
The cost of purchases and proceeds from sale of long-term investments for the period ended April 30, 2016 were as follows:
| Cost of purchases | $ | 114,123,079 | ||
| Proceeds from sales | 158,086,245 |
The following information is presented on a federal income tax basis as of April 30, 2016. Differences between the cost basis under U.S. generally accepted accounting principles and federal income tax purposes are primarily due to temporary differences.
The cost basis of investments for federal income tax purposes at April 30, 2016 was as follows:
| Cost basis of investments | $ | 2,421,591,391 | ||
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| Gross unrealized appreciation | 285,045,898 | |||
| Gross unrealized depreciation | (330,468,434 | ) | ||
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| Net unrealized appreciation (depreciation) | $ | (45,422,536 | ) | |
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| 20 | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT |
Table of Contents
Notes to Financial Statements (Unaudited)
Note 4 – Income Taxes
The Fund intends to make monthly distributions from its income available for distribution, which consists of the Fund’s dividends and interest income after payment of Fund expenses, and net realized gains on stock investments. At least annually, the Fund intends to distribute all or substantially all of its net realized capital gains, if any. Distributions are recorded on the ex-dividend date. The Fund distinguishes between distributions on a tax basis and a financial reporting basis. Accounting principles generally accepted in the United States of America require that only distributions in excess of tax basis earnings and profits be reported in the financial statements as a return of capital. Permanent differences between book and tax accounting relating to distributions are reclassified to paid-in-capital. For tax purposes, distributions from short-term capital gains are considered to be from ordinary income. Distributions in any year may include a return of capital component.
The tax character of distributions for the period ended April 30, 2016 will be determined at the end of the Fund’s current fiscal year.
Distributions for the year ended October 31, 2015 were characterized for federal income tax purposes as follows:
| YEAR ENDED OCTOBER 31, 2015 |
||||
| Distributions paid from: | ||||
| Ordinary income | $ | 102,617,875 | ||
| Return of capital | 50,350,985 | |||
As of October 31, 2015, the components of accumulated earnings/(loss) on a tax basis were as follows:
| Undistributed ordinary income | $ | — | ||
| Undistributed capital gains | 21,887,067 | |||
|
|
|
|||
| Total undistributed earnings | 21,887,067 | |||
| Accumulated capital and other losses | — | |||
| Net unrealized gains/(losses) | (56,056,235 | ) | ||
|
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|
|||
| Total accumulated earnings/(losses) | (34,169,168 | ) | ||
| Other | (261,844 | ) | ||
| Paid-in-capital | 1,837,456,790 | |||
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| Net assets applicable to common shareholders | $ | 1,803,025,778 | ||
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The Regulated Investment Company Modernization Act of 2010 (the “Act”) modernized various tax rules for regulated investment companies, and was effective for taxable years beginning after the enactment date of December 22, 2010. One significant change is to the treatment of capital loss carryforwards. Now, any capital losses recognized will retain their character as either short-term or long-term capital losses, will be utilized before the pre-Act capital loss carryforwards, and will be carried forward indefinitely, until applied in offsetting future capital gains.
Note 5 – Common Shares
There are unlimited common shares of beneficial interest authorized and 154,514,000 shares outstanding at April 30, 2016. Calamos Advisors owned 38,862 of the outstanding shares at April 30, 2016. Transactions in common shares were as follows:
| PERIOD ENDED APRIL 30, 2016 |
YEAR ENDED OCTOBER 31, 2015 |
|||||||
| Beginning shares | 154,514,000 | 154,514,000 | ||||||
| Shares issued through reinvestment of distributions | — | — | ||||||
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|||||||
| Ending shares | 154,514,000 | 154,514,000 | ||||||
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|||||||
Notice is hereby given in accordance with Section 23(c) of the 1940 Act that the Fund may from time to time purchase its shares of common stock in the open market.
The Fund also may offer and sell common shares from time to time at an offering price equal to or in excess of the net asset value per share of the Fund’s common shares at the time such common shares are initially sold.
| CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | 21 |
Table of Contents
Notes to Financial Statements (Unaudited)
Note 6 – Derivative Instruments
Foreign Currency Risk. The Fund may engage in portfolio hedging with respect to changes in currency exchange rates by entering into forward foreign currency contracts to purchase or sell currencies. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. Risks associated with such contracts include, among other things, movement in the value of the foreign currency relative to the U.S. dollar and the ability of the counterparty to perform. To mitigate the counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its derivative contract counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs over-the-counter derivatives and foreign exchange contracts and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instrument’s payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default (close-out netting), including the bankruptcy or insolvency of the counterparty. Generally, collateral is exchanged between the Fund and the counterparty and the amount of collateral due from the Fund or to a counterparty has to exceed a minimum transfer amount threshold before a transfer has to be made. To the extent amounts due to the Fund from its counterparties are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty nonperformance. For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statement of Assets and Liabilities. The Fund’s net counterparty exposure is reflected in the counterparty table below. The net unrealized gain, if any, represents the credit risk to the Fund on a forward foreign currency contract. The contracts are valued daily at forward foreign exchange rates. The Fund realizes a gain or loss when a position is closed or upon settlement of the contracts. There were no open forward foreign currency contracts at April 30, 2016.
Equity Risk. The Fund may engage in option transactions and in doing so achieves similar objectives to what it would achieve through the sale or purchase of individual securities. A call option, upon payment of a premium, gives the purchaser of the option the right to buy, and the seller of the option the obligation to sell, the underlying security, index or other instrument at the exercise price. A put option gives the purchaser of the option, upon payment of a premium, the right to sell, and the seller the obligation to buy, the underlying security, index, or other instrument at the exercise price.
To seek to offset some of the risk of a potential decline in value of certain long positions, the Fund may also purchase put options on individual securities, broad-based securities indexes or certain exchange-traded funds (“ETFs”). The Fund may also seek to generate income from option premiums by writing (selling) options on a portion of the equity securities (including securities that are convertible into equity securities) in the Fund’s portfolio, on broad-based securities indexes, or certain ETFs.
When a Fund purchases an option, it pays a premium and an amount equal to that premium is recorded as an asset. When a Fund writes an option, it receives a premium and an amount equal to that premium is recorded as a liability. The asset or liability is adjusted daily to reflect the current market value of the option. If an option expires unexercised, the Fund realizes a gain or loss to the extent of the premium received or paid. If an option is exercised, the premium received or paid is recorded as an adjustment to the proceeds from the sale or the cost basis of the purchase. The difference between the premium and the amount received or paid on a closing purchase or sale transaction is also treated as a realized gain or loss. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. Gain or loss on written options and purchased options is presented separately as net realized gain or loss on written options and net realized gain or loss on purchased options, respectively.
Options written by the Fund do not typically give rise to counterparty credit risk since options written obligate the Fund and not the counterparty to perform. Exchange traded purchased options have minimal counterparty credit risk to the Fund since the exchange’s clearinghouse, as counterparty to such instruments, guarantees against a possible default.
Interest Rate Risk. The Fund engages in interest rate swaps primarily to hedge the interest rate risk on the Fund’s borrowings (see Note 7 – Borrowings). An interest rate swap is a contract that involves the exchange of one type of interest rate for another type of interest rate. If interest rates rise, resulting in a diminution in the value of the Fund’s portfolio, the Fund would receive payments under the swap that would offset, in whole or in part, such diminution in value; if interest rates fall, the Fund would likely lose money on the swap transaction. Unrealized gains are reported as an asset, and unrealized losses are reported as a liability on the Statement
| 22 | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT |
Table of Contents
Notes to Financial Statements (Unaudited)
of Assets and Liabilities. The change in value of swaps, including accruals of periodic amounts of interest to be paid or received on swaps, is reported as change in net unrealized appreciation/depreciation on interest rate swaps in the Statement of Operations. A realized gain or loss is recorded in net realized gain (loss) on interest rate swaps in the Statement of Operations upon payment or receipt of a periodic payment or termination of the swap agreements. Swap agreements are stated at fair value. Notional principal amounts are used to express the extent of involvement in these transactions, but the amounts potentially subject to credit risk are much smaller. In connection with these contracts, securities may be identified as collateral in accordance with the terms of the respective swap contracts in the event of default or bankruptcy of the Fund.
Premiums paid to or by a Fund are accrued daily and included in realized gain (loss) when paid on swaps in the accompanying Statement of Operations. The contracts are marked-to-market daily based upon third party vendor valuations and changes in value are recorded as unrealized appreciation (depreciation). Gains or losses are realized upon early termination of the contract. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. These risks include changes in the returns of the underlying instruments, failure of the counterparties to perform under the contracts’ terms, counterparty’s creditworthiness, and the possible lack of liquidity with respect to the contracts.
As of April 30, 2016, the Fund had outstanding interest rate swap agreements as listed on the Schedule of Investments.
As of April 30, 2016, the Fund had outstanding derivative contracts which are reflected on the Statement of Assets and Liabilities as follows:
| ASSET DERIVATIVES |
LIABILITY DERIVATIVES |
|||||||
| Gross amounts at fair value: | ||||||||
| Interest Rate Swaps(1) | $ | — | $ | 232,449 | ||||
|
|
|
|||||||
| $ | — | $ | 232,449 | |||||
|
|
|
|||||||
| (1) | Generally, the Statement of Assets and Liabilities location for “Interest rate swaps” is “Unrealized appreciation (depreciation) on interest rate swaps.” |
The following table presents the outstanding derivative contracts, organized by counterparty, that are subject to enforceable master netting agreements as of April 30, 2016:
| GROSS AMOUNTS NOT OFFSET IN THE STATEMENT OF ASSETS AND LIABILITIES |
||||||||||||||||||||||
| Counterparty |
GROSS AMOUNTS PRESENTED IN THE |
COLLATERAL PLEDGED |
NET AMOUNT RECEIVABLE IN THE EVENT OF DEFAULT |
NET AMOUNT PAYABLE IN THE EVENT OF DEFAULT |
||||||||||||||||||
| ASSETS | LIABILITIES | |||||||||||||||||||||
| BNP Paribas, SA | ISDA | $ | — | $ | 232,449 | $ | (232,449 | ) | $ | — | $ | — | ||||||||||
|
|
|
|||||||||||||||||||||
| $ | — | $ | 232,449 | $ | (232,449 | ) | $ | — | $ | — | ||||||||||||
|
|
|
|||||||||||||||||||||
Note 7 – Borrowings
The Fund, with the approval of its board of trustees, including its independent trustees, has entered into a financing package that includes a Committed Facility Agreement (the “BNP Agreement”) with BNP Paribas Prime Brokerage International Ltd. (“BNP”) that allows the Fund to borrow up to $415.0 million and a lending agreement (“Lending Agreement”), as defined below. In addition, the financing package also includes a Credit Agreement (the “SSB Agreement”, together with the BNP Agreement, “Agreements”) with State Street Bank and Trust Company (“SSB”) that allows the Fund to borrow up to a limit of $415.0 million, and a related securities lending authorization agreement (“Authorized Agreement”). Borrowings under the BNP Agreement and the SSB Agreement are secured by assets of the Fund that are held with the Fund’s custodian in a separate account (the “pledged collateral”). BNP and SSB share an equal claim on the pledged collateral, subject to any adjustment that may be agreed upon between the lenders. Interest on the BNP Agreement is charged at the three month LIBOR (London Inter-bank Offered Rate) plus .65% on the amount borrowed and .55% on the undrawn balance. Interest on the SSB Agreement is charged on the drawn amount at the rate of Overnight LIBOR plus .80% and .10% on the undrawn balance (if the undrawn amount is more than 75% of the borrowing limit, the commitment fee is .20%). For the period ended April 30, 2016, the average borrowings under the Agreements were $699.3 million. For the period ended April 30, 2016, the average interest rate was 1.08%. As of April 30, 2016, the amount of total outstanding borrowings was
| CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | 23 |
Table of Contents
Notes to Financial Statements (Unaudited)
$682.0 million ($341.0 million under the BNP Agreement and $341.0 million under the SSB Agreement), which approximates fair value. The interest rate applicable to the borrowings on April 30, 2016 was 1.04%.
The Lending Agreement with BNP is a separate side-agreement between the Fund and BNP pursuant to which BNP may borrow a portion of the pledged collateral (the “Lent Securities”) in an amount not to exceed the outstanding borrowings owed by the Fund to BNP under the BNP Agreement. The Lending Agreement is intended to permit the Fund to significantly reduce the cost of its borrowings under the BNP Agreement. BNP may re-register the Lent Securities in its own name or in another name other than the Fund, and may pledge, re-pledge, sell, lend or otherwise transfer or use the Lent Securities with all attendant rights of ownership. (It is the Fund’s understanding that BNP will perform due diligence to determine the creditworthiness of any party that borrows Lent Securities from BNP.) The Fund may designate any security within the pledged collateral as ineligible to be a Lent Security, provided there are eligible securities within the pledged collateral in an amount equal to the outstanding borrowing owed by the Fund. During the period in which the Lent Securities are outstanding, BNP must remit payment to the Fund equal to the amount of all dividends, interest or other distributions earned or made by the Lent Securities.
Under the terms of the Lending Agreement with BNP, the Lent Securities are marked to market daily, and if the value of the Lent Securities exceeds the value of the then-outstanding borrowings owed by the Fund to BNP under the Agreement (the “Current Borrowings”), BNP must, on that day, either (1) return Lent Securities to the Fund’s custodian in an amount sufficient to cause the value of the outstanding Lent Securities to equal the Current Borrowings; or (2) post cash collateral with the Fund’s custodian equal to the difference between the value of the Lent Securities and the value of the Current Borrowings. If BNP fails to perform either of these actions as required, the Fund will recall securities, as discussed below, in an amount sufficient to cause the value of the outstanding Lent Securities to equal the Current Borrowings. The Fund can recall any of the Lent Securities and BNP shall, to the extent commercially possible, return such security or equivalent security to the Fund’s custodian no later than three business days after such request. If the Fund recalls a Lent Security pursuant to the Lending Agreement, and BNP fails to return the Lent Securities, or equivalent securities in a timely fashion, BNP shall remain liable for the ultimate delivery of such Lent Securities, or equivalent securities, to be made to the Fund’s custodian, and for any buy-in costs that the executing broker for the sales transaction may impose with respect to the failure to deliver. The Fund shall also have the right to apply and set-off an amount equal to one hundred percent (100%) of the then-current fair market value of such Lent Securities against the Current Borrowings.
Under the terms of the Authorized Agreement with SSB, all securities lent through SSB must be secured continuously by collateral received in cash, cash equivalents, or U.S. Treasury bills and maintained on a current basis at an amount at least equal to the market value of the securities loaned. Cash collateral held by SSB on behalf of the Fund may be credited against the amounts borrowed under the SSB Agreement. Any amounts credited against the SSB Agreement would count against the Fund’s leverage limitations under the 1940 Act, unless otherwise covered in accordance with SEC Release IC-10666. Under the terms of the Authorized Agreement with SSB, SSB will return the value of the collateral to the borrower upon the return of the lent securities, which will eliminate the credit against the SSB Agreement and will cause the amount drawn under the SSB Agreement to increase in an amount equal to the returned collateral. Under the terms of the Authorized Agreement with SSB, the Fund will make a variable “net income” payment related to any collateral credited against the SSB Agreement which will be paid to the securities borrower, less any payments due to the Fund or SSB under the terms of the Authorized Agreement. The Fund has the right to call a loan and obtain the securities loaned at any time. As of April 30, 2016, the Fund used approximately $261.0 million of its cash collateral to offset the SSB Agreement, representing 11.0% of managed assets, and was required to pay a “net income” payment equal to an annualized interest rate of 0.59%, which can fluctuate depending on interest rates. As of April 30, 2016, approximately $253.3 million of securities were on loan ($40.2 million of fixed income securities and $213.1 million of equity securities) which are reflected in the Investment in securities, at value on the Statement of Assets and Liabilities.
On May 22, 2015, the Fund’s board of trustees amended the Fund’s non-fundamental policy with respect to borrowings to be measured based on managed assets rather than total assets. The policy, as amended, is as follows:
As a non-fundamental policy, the Fund may not issue debt securities, borrow money or issue preferred shares in an aggregate amount exceeding 38% of the Fund’s managed assets measured at the time of issuance of the new securities.
For purposes of this non-fundamental policy, “managed assets” shall mean the total assets of the Fund (including any assets attributable to any leverage that may be outstanding) minus the sum of liabilities (other than debt representing financial leverage). The policy is measured at each incurrence of the debt, and is not a maintenance test.
| 24 | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT |
Table of Contents
Notes to Financial Statements (Unaudited)
Note 8 – Fair Value Measurements
Various inputs are used to determine the value of the Fund’s investments. These inputs are categorized into three broad levels as follows:
| • | Level 1 – Prices are determined using inputs from unadjusted quoted prices from active markets (including securities actively traded on a securities exchange) for identical assets. |
| • | Level 2 – Prices are determined using significant observable market inputs other than unadjusted quoted prices, including quoted prices of similar securities, fair value adjustments to quoted foreign securities, interest rates, credit risk, prepayment speeds, and other relevant data. |
| • | Level 3 – Prices reflect unobservable market inputs (including the Fund’s own judgments about assumptions market participants would use in determining fair value) when observable inputs are unavailable. |
Debt securities are valued based upon evaluated prices received from an independent pricing service or from a dealer or broker who makes markets in such securities. Pricing services utilize various observable market data and as such, debt securities are generally categorized as Level 2. The levels are not necessarily an indication of the risk or liquidity of the Fund’s investments. Transfers between the levels for investment securities or other financial instruments are measured at the end of the reporting period.
The following is a summary of the inputs used in valuing the Fund’s holdings at fair value:
| LEVEL 1 | LEVEL 2 | LEVEL 3 | TOTAL | |||||||||||||
| Assets: | ||||||||||||||||
| Corporate Bonds |
$ | — | $ | 444,661,534 | $ | — | $ | 444,661,534 | ||||||||
| Convertible Bonds |
— | 246,603,957 | — | 246,603,957 | ||||||||||||
| U.S. Government and Agency Security |
— | 600,609 | — | 600,609 | ||||||||||||
| Convertible Preferred Stocks |
148,133,240 | 10,294,800 | — | 158,428,040 | ||||||||||||
| Common Stocks U.S. |
1,424,720,013 | 5,311,590 | — | 1,430,031,603 | ||||||||||||
| Common Stocks Foreign |
— | 21,603,792 | — | 21,603,792 | ||||||||||||
| Rights |
— | 268,054 | — | 268,054 | ||||||||||||
| Warrants |
3,150,417 | — | — | 3,150,417 | ||||||||||||
| Short Term Investment |
70,820,849 | — | — | 70,820,849 | ||||||||||||
|
|
|
|||||||||||||||
| Total | $ | 1,646,824,519 | $ | 729,344,336 | $ | — | $ | 2,376,168,855 | ||||||||
|
|
|
|||||||||||||||
| Liabilities: | ||||||||||||||||
| Interest Rate Swaps |
$ | — | $ | 232,449 | $ | — | $ | 232,449 | ||||||||
|
|
|
|||||||||||||||
| Total | $ | — | $ | 232,449 | $ | — | $ | 232,449 | ||||||||
|
|
|
|||||||||||||||
| CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | 25 |
Table of Contents
Selected data for a share outstanding throughout each period were as follows:
| (Unaudited) Six Months Ended April 30, |
Years Ended October 31, | |||||||||||||||||||||||
| 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||||||
| Net asset value, beginning of period |
$11.67 | $12.51 | $11.86 | $10.56 | $10.15 | $10.27 | ||||||||||||||||||
| Income from investment operations: |
||||||||||||||||||||||||
| Net investment income (loss)* |
0.15 | 0.38 | 0.42 | 0.41 | 0.44 | 0.46 | ||||||||||||||||||
| Net realized and unrealized gain (loss) |
(0.33 | ) | (0.23 | ) | 1.16 | 1.73 | 0.76 | 0.05 | ||||||||||||||||
| Total from investment operations |
(0.18 | ) | 0.15 | 1.58 | 2.14 | 1.20 | 0.51 | |||||||||||||||||
| Less distributions to common shareholders from: |
||||||||||||||||||||||||
| Net investment income |
(0.50 | ) | (0.66 | ) | (0.55 | ) | (0.59 | ) | (0.67 | ) | (0.50 | ) | ||||||||||||
| Net realized gains |
— | — | (0.16 | ) | — | — | — | |||||||||||||||||
| Return of capital |
— | (0.33 | ) | (0.22 | ) | (0.25 | ) | (0.12 | ) | (0.13 | ) | |||||||||||||
| Total distributions |
(0.50 | ) | (0.99 | ) | (0.93 | ) | (0.84 | ) | (0.79 | ) | (0.63 | ) | ||||||||||||
| Net asset value, end of period |
$10.99 | $11.67 | $12.51 | $11.86 | $10.56 | $10.15 | ||||||||||||||||||
| Market value, end of period |
$9.87 | $10.20 | $11.82 | $10.56 | $10.25 | $8.69 | ||||||||||||||||||
| Total investment return based on:(a) |
||||||||||||||||||||||||
| Net asset value |
(0.78% | ) | 1.98% | 14.46% | 21.83% | 12.97% | 5.84% | |||||||||||||||||
| Market value |
1.95% | (5.66% | ) | 21.46% | 11.75% | 28.08% | 2.72% | |||||||||||||||||
| Net assets, end of period (000) |
$1,698,169 | $1,803,026 | $1,932,218 | $1,832,666 | $1,631,424 | $1,567,880 | ||||||||||||||||||
| Ratios to average net assets applicable to common shareholders: |
||||||||||||||||||||||||
| Net expenses |
1.97% | (b) | 1.81% | 1.72% | 1.79% | 1.91% | 1.93% | |||||||||||||||||
| Gross expenses prior to expense reductions and earnings credits |
1.97% | (b) | 1.81% | 1.72% | 1.79% | 1.91% | 1.93% | |||||||||||||||||
| Net expenses, excluding interest expense |
1.51% | (b) | 1.47% | 1.44% | 1.44% | 1.45% | 1.41% | |||||||||||||||||
| Net investment income (loss) |
2.83% | (b) | 3.11% | 3.39% | 3.71% | 4.25% | 4.31% | |||||||||||||||||
| Portfolio turnover rate |
5% | 23% | 20% | 55% | 48% | 30% | ||||||||||||||||||
| Average commission rate paid |
$0.0286 | $0.0336 | $0.0210 | $0.0234 | $0.0171 | $— | ||||||||||||||||||
| Asset coverage per $1,000 of loan outstanding(c) |
$3,490 | $3,518 | $3,665 | $3,619 | $3,832 | $3,722 | ||||||||||||||||||
| * | Net investment income allocated based on average shares method. |
| (a) | Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of the period reported. Dividends and distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total return is not annualized for periods less than one year. Brokerage commissions are not reflected. NAV per share is determined by dividing the value of the Fund’s portfolio securities, cash and other assets, less all liabilities, by the total number of common shares outstanding. The common share market price is the price the market is willing to pay for shares of the Fund at a given time. Common share market price is influenced by a range of factors, including supply and demand and market conditions. |
| (b) | Annualized. |
| (c) | Calculated by subtracting the Fund’s total liabilities (not including Notes payable) from the Fund’s total assets and dividing this by the amount of notes payable outstanding, and by multiplying the result by 1,000. |
| 26 | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT |
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of Calamos Strategic Total Return Fund
We have reviewed the accompanying statement of assets and liabilities, including the schedule of investments, for Calamos Strategic Total Return Fund (the “Fund”) as of April 30, 2016, and the related statements of operations, changes in net assets, and cash flows and the financial highlights for the six month period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management.
We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements and financial highlights taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to such financial statements and financial highlights for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statement of changes in net assets of the Fund for the year ended October 31, 2015 and the financial highlights for each of the five years in the period then ended; and in our report dated December 16, 2015, we expressed an unqualified opinion on such statement of changes in net assets and financial highlights.
Chicago, Illinois
June 15, 2016
| CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | 27 |
Table of Contents
What is a Closed-End Fund?
A closed-end fund is a publicly traded investment company that raises its initial investment capital through the issuance of a fixed number of shares to investors in a public offering. Shares of a closed-end fund are listed on a stock exchange or traded in the over-the-counter market. Like all investment companies, a closed-end fund is professionally managed and offers investors a unique investment solution based on its investment objective approved by the fund’s Board of Directors.
Potential Advantages of Closed-End Fund Investing
| • | Defined Asset Pool Allows Efficient Portfolio Management—Although closed-end fund shares trade actively on a securities exchange, this doesn’t affect the closed-end fund manager because there are no new investors buying into or selling out of the fund’s portfolio. |
| • | More Flexibility in the Timing and Price of Trades—Investors can purchase and sell shares of closed-end funds throughout the trading day, just like the shares of other publicly traded securities. |
| • | Lower Expense Ratios—The expense ratios of closed-end funds are oftentimes less than those of mutual funds. Over time, a lower expense ratio could enhance investment performance. |
| • | Closed-End Structure Makes Sense for Less-Liquid Asset Classes—A closed-end structure makes sense for investors considering less-liquid asset classes, such as high-yield bonds or micro-cap stocks. |
| • | Ability to Put Leverage to Work—Closed-end funds may issue senior securities (such as preferred shares or debentures) or borrow money to “leverage” their investment positions. |
| • | No Minimum Investment Requirements |
OPEN-END MUTUAL FUNDS VERSUS CLOSED-END FUNDS
| OPEN-END FUND | CLOSED-END FUND | |
| Issues new shares on an ongoing basis | Generally issues a fixed number of shares | |
| Issues common equity shares | Can issue common equity shares and senior securities such as preferred shares and bonds | |
| Sold at NAV plus any sales charge | Price determined by the marketplace | |
| Sold through the fund’s distributor | Traded in the secondary market | |
| Fund redeems shares at NAV calculated at the close of business day | Fund does not redeem shares |
You can purchase or sell common shares of closed-end funds daily. Like any other stock, market price will fluctuate with the market. Upon sale, your shares may have a market price that is above or below net asset value and may be worth more or less than your original investment. Shares of closed-end funds frequently trade at a discount, which is a market price that is below their net asset value.
Leverage creates risks which may adversely affect return, including the likelihood of greater volatility of net asset value and market price of common shares and fluctuations in the variable rates of the leverage financing.
Each open-end or closed-end fund should be evaluated individually. Before investing carefully consider the fund’s investment objectives, risks, charges and expenses.
| 28 | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT |
Table of Contents
Level Rate Distribution Policy
Using a Level Rate Distribution Policy to Promote Dependable Income and Total Return
The goal of the level rate distribution policy is to provide investors a predictable, though not assured, level of cash flow, which can either serve as a stable income stream or, through reinvestment, may contribute significantly to long-term total return.
We understand the importance that investors place on the stability of dividends and their ability to contribute to long-term total return, which is why we have instituted a level rate distribution policy for the Fund. Under the policy, monthly distributions paid may include net investment income, net realized short-term capital gains and, if necessary, return of capital. In addition, a limited number of distributions per calendar year may include net realized long-term capital gains. There is no guarantee that the Fund will realize capital gains in any given year. Distributions are subject to re-characterization for tax purposes after the end of the fiscal year. All shareholders with taxable accounts will receive written notification regarding the components and tax treatment for distributions via Form 1099-DIV.
Distributions from the Fund are generally subject to Federal income taxes. For purposes of maintaining the level rate distribution policy, the Fund may realize short-term capital gains on securities that, if sold at a later date, would have resulted in long-term capital gains. Maintenance of a level rate distribution policy may increase transaction and tax costs associated with the Fund.
Automatic Dividend Reinvestment Plan
Maximizing Investment with an Automatic Dividend Reinvestment Plan
The Automatic Dividend Reinvestment Plan offers a simple, cost-efficient and convenient way to reinvest your dividends and capital gains distributions in additional shares of the Fund, allowing you to increase your investment in the Fund.
Potential Benefits
| • | Compounded Growth: By automatically reinvesting with the Plan, you gain the potential to allow your dividends and capital gains to compound over time. |
| • | Potential for Lower Commission Costs: Additional shares are purchased in large blocks, with brokerage commissions shared among all plan participants. There is no cost to enroll in the Plan. |
| • | Convenience: After enrollment, the Plan is automatic and includes detailed statements for participants. Participants can terminate their enrollment at any time. |
Pursuant to the Plan, unless a shareholder is ineligible or elects otherwise, all dividend and capital gains on common shares distributions are automatically reinvested by Computershare, as agent for shareholders in administering the Plan (“Plan Agent”), in additional common shares of the Fund. Shareholders who elect not to participate in the Plan will receive all dividends and distributions payable in cash paid by check mailed directly to the shareholder of record (or, if the shares are held in street or other nominee name, then to such nominee) by Plan Agent, as dividend paying agent. Shareholders may elect not to participate in the Plan and to receive all dividends and distributions in cash by sending written instructions to the Plan Agent, as dividend paying agent, at: Dividend Reinvestment Department, P.O. Box 358016, Pittsburgh, PA 15252. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by giving notice in writing to the Plan Agent; such termination will be effective with respect to a particular dividend or distribution if notice is received prior to the record date for the applicable distribution.
The shares are acquired by the Plan Agent for the participant’s account either (i) through receipt of additional common shares from the Fund (“newly issued shares”) or (ii) by purchase of outstanding common shares on the
| CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT | 29 |
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Automatic Dividend Reinvestment Plan
open market (“open-market purchases”) on the NASDAQ or elsewhere. If, on the payment date, the net asset value per share of the common shares is equal to or less than the market price per common share plus estimated brokerage commissions (a “market premium”), the Plan Agent will receive newly issued shares from the Fund for each participant’s account. The number of newly issued common shares to be credited to the participant’s account will be determined by dividing the dollar amount of the dividend or distribution by the greater of (i) the net asset value per common share on the payment date, or (ii) 95% of the market price per common share on the payment date.
If, on the payment date, the net asset value per common share exceeds the market price plus estimated brokerage commissions (a “market discount”), the Plan Agent has a limited period of time to invest the dividend or distribution amount in shares acquired in open-market purchases. The weighted average price (including brokerage commissions) of all common shares purchased by the Plan Agent as Plan Agent will be the price per common share allocable to each participant. If the Plan Agent is unable to invest the full dividend amount in open-market purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Agent will cease making open-market purchases and will invest the uninvested portion of the dividend or distribution amount in newly issued shares at the close of business on the last purchase date.
The automatic reinvestment of dividends and distributions will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such dividends even though no cash is received by participants.
There are no brokerage charges with respect to shares issued directly by the Fund as a result of dividends or distributions payable either in shares or in cash. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent’s open-market purchases in connection with the reinvestment of dividends or distributions. If a participant elects to have the Plan Agent sell part or all of his or her common shares and remit the proceeds, such participant will be charged his or her pro rata share of brokerage commissions on the shares sold, plus a $15 transaction fee. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants.
A participant may request the sale of all of the common shares held by the Plan Agent in his or her Plan account in order to terminate participation in the Plan. If such participant elects in advance of such termination to have the Plan Agent sell part or all of his shares, the Plan Agent is authorized to deduct from the proceeds a $15.00 fee plus the brokerage commissions incurred for the transaction. A participant may re-enroll in the Plan in limited circumstances.
The terms and conditions of the Plan may be amended by the Plan Agent or the Fund at any time upon notice as required by the Plan.
This discussion of the Plan is only summary, and is qualified in its entirety by the Terms and Conditions of the Dividend Reinvestment Plan filed as part of the Fund’s registration statement.
For additional information about the Plan, please contact the Plan Agent, Computershare, at 866.226.8016. If you wish to participate in the Plan and your shares are held in your own name, simply call the Plan Agent. If your shares are not held in your name, please contact your brokerage firm, bank, or other nominee to request that they participate in the Plan on your behalf. If your brokerage firm, bank, or other nominee is unable to participate on your behalf, you may request that your shares be re-registered in your own name.
We’re pleased to provide our shareholders with the additional benefit of the Fund’s Dividend Reinvestment Plan and hope that it may serve your financial plan.
| 30 | CALAMOS STRATEGIC TOTAL RETURN FUND SEMIANNUAL REPORT |
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ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
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ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Included in the Report to Shareholders in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) Not applicable.
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ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No material changes.
ITEM 11. CONTROLS AND PROCEDURES.
a) The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures within 90 days of this filing and have concluded that the registrant’s disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and timely reported.
b) There were no changes in the registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics - Not applicable.
(a)(2)(i) Certification of Principal Executive Officer.
(a)(2)(ii) Certification of Principal Financial Officer.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Calamos Strategic Total Return Fund | ||
| By: /s/ John P. Calamos, Sr. | ||
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| Name: John P. Calamos, Sr. | ||
| Title: Principal Executive Officer | ||
| Date: June 21, 2016 | ||
| By: /s/ Nimish S. Bhatt | ||
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| Name: Nimish S. Bhatt | ||
| Title: Principal Financial Officer | ||
| Date: June 21, 2016 | ||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: /s/ John P. Calamos, Sr. | ||
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| Name: John P. Calamos, Sr. | ||
| Title: Principal Executive Officer | ||
| Date: June 21, 2016 | ||
| By: /s/ Nimish S. Bhatt | ||
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| ||
| Name: Nimish S. Bhatt | ||
| Title: Principal Financial Officer | ||
| Date: June 21, 2016 | ||